Report: $24.2 Billion in Crypto Funneled to Illicit Wallets in 2023

Cryptocurrency research firm Chainalysis recently disclosed that a staggering $24.2 billion worth of digital assets found their way into illicit crypto wallet addresses throughout 2023 (via Reuters).

The findings, released on Thursday, underscore the persistent challenges faced by the crypto industry in combating illegal financial activities.

Chainalysis Reports of Billions in Illicit Crypto Transactions

Cryptocurrencies, known for their borderless and decentralized nature, enable users to transfer funds globally without reliance on traditional financial systems.

However, this very characteristic also poses a significant challenge regarding tracking and preventing illicit transactions. Chainalysis reported that the $24.2 billion figure is likely an underestimation, expecting it to rise as more illicit addresses are identified.

The report reveals a substantial increase from the 2022 estimate, doubling from $20.6 billion to a staggering $39.6 billion in 2023. It's crucial to note that this estimate includes a notable exception - $8.7 billion in creditor claims against FTX.

Chainalysis emphasizes the complexity of measuring fraudulent activity solely through on-chain data, making FTX's inclusion unique.

A Much Darker Side

While the report focuses exclusively on crypto-related crime, it acknowledges the inherent difficulty distinguishing the proceeds of non-crypto-related crimes.

For instance, blockchain data alone cannot determine the volume of cryptocurrency involved in drug trafficking when it serves as the means of payment.

Sanctions-related transactions took center stage in the illicit crypto landscape, constituting a substantial 61.5% of all measured illegal volume transactions, reaching $14.9 billion in 2023.

Most of these transactions were associated with crypto services sanctioned by the US or US-sanctioned jurisdictions where US sanctions are not enforced.

Surge in Crypto Crime

Despite an overall decline in 2023, crypto scamming and hacking revenues saw a divergent trend. While scamming and hacking revenues plummeted by 29.2% and 54.3%, respectively, ransomware and darknet markets witnessed a revenue growth. This shift indicates a nuanced landscape within illicit crypto activities, with threat actors adapting their tactics.

Chainalysis delves into the types of illicit addresses identified in the report, ranging from those linked to terrorist financing to cybercrime and child abuse material. The comprehensive breakdown provides a sobering look at the diverse range of illicit activities within the crypto space.

The United States, recognizing the severity of the issue, has pledged to crack down on crypto firms that fail to block and report illicit money flows. Last year, the founder of Binance pleaded guilty to violating US anti-money laundering laws, underscoring the need for regulatory scrutiny within the industry.

A recent United Nations report has further highlighted unregulated cryptocurrency exchanges' critical role as "foundational pieces" of financial architecture exploited by organized crime in Southeast Asia, addressing the challenges posed by illicit crypto activities.

Bitcoin, once the go-to currency for cybercriminals, has seen a shift in preference. Stablecoins now dominate the illicit transaction landscape, accounting for most such activities. This shift in preference underscores the adaptability of criminals in navigating the evolving crypto landscape.

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